Miriam Steffens

No sooner was Sol Trujillo out the door than the jury of public opinion handed down its verdict: the departed Telstra boss had joined the list of failed foreign chief executives, alongside the likes of AMP's George Trumbull, AGL's Paul Anthony and BHP Billiton's Brian Gilbertson.

In the weeks since the American left Australia, his comments that he has escaped a racist, backward nation have fuelled a debate about whether Australian companies should continue to woo prominent, highly paid executives from overseas.

Is the local talent pool so shallow that company boards are forced to send headhunters on worldwide searches for big-name CEOs?

Yet in a global economy, where Australian companies expand into other markets and generate more and more profits from overseas, how relevant is the question of nationality anyway? Numerous foreigners have successfully led local companies, such as the Americans Bob Joss at Westpac, Chip Goodyear at BHP and Kirby Adams at BlueScope.

Advertisement

And for every boss we are importing, there is an Australian making it big overseas - the late Charlie Bell, who ran McDonald's, the former Ford boss Jac Nasser, Andrew Liveris at Dow Chemical and Rod Eddington, who led British Airways.

However, Mr Trujillo's spectacular departure has set off renewed debate about recruiting overseas, some business leaders openly speaking out against it.

In his inimitable style, Gerry Harvey, the founder of Harvey Norman, sums up one side of the argument, saying most have been "duds", unable to land comparable jobs in their home countries. "They put the money in their pocket and go back home and never work again. I think there's absolutely zero point in bringing people in from overseas.

"The only reason [boards] do it is because the grass is greener on the other side of the fence. They have done it so many times and it has failed so many times, it's like you never learn your lesson.

"They should look internally, and if they had, in nine cases out of 10 they would have got a better result."

Speaking before the Trujillo departure, Wal King, Leighton's veteran chief executive, was similarly sceptical, saying the construction company and contract miner would never accept a successor from overseas. "It has to be an Australian to lead an Australian organisation," Mr King told the Sydney fund manager and author Matthew Kidman in Master CEOs, a book on corporate leadership published earlier this year.

While worldwide searches delivered high-powered bosses, "invariably those people never stay", Mr King argued. "They can implement rapid cultural change, but they never contribute to the long-term future of the company. They don't have the roots or emotional attachment. Not one of them has stayed in Australia. They all come and put their imprint on the organisation and then disappear."

Yet it is now standard practice in boardrooms across the country to announce a global search for a new boss, hiring worldwide headhunters to look for candidates offshore.

"Australia is often a bit thin in terms of senior executive talent," said John Colvin, head of the Australian Institute of Company Directors.

Recruitment firms such as Russell Reynolds and Korn Ferry said 100 per cent of their CEO assignments, and most searches for senior people who report directly to a chief executive, now involved clients asking them to look offshore.

Global searches, which five years ago were mainly in the financial, medical and academic sectors, now spread to all industries, with the mining and resources sector setting the pace. "Companies are often forced into looking offshore as the market in Australia across a number of sectors simply is not big enough to support local search requirements," Russell Reynolds said in a letter filed last week with the Government's Productivity Commission inquiry into executive remuneration.

With Australia's concentrated market in many industries - for example, just two major supermarket chains - and its relatively small economy, there are simply not enough companies from which to choose talent, global search advocates argue.

From an investor perspective, the chief executive's nationality was "totally irrelevant frankly", said Dean Paatsch, of the corporate governance adviser RiskMetrics.

"Ability should be the pre-determinant. Labour is mobile, and to set your horizon only on the local markets might not be the best thing for shareholders."

It was like looking for a life partner: "Are you really happy with what's on offer at the local pub or should you be looking a bit further afield?"

Boards often turned to overseas candidates when they wanted an outsider to shake things up and change the corporate culture, which Mr Trujillo arguably had achieved, said Peter Swan, professor of finance at the University of NSW's Australian School of Business.

"What we've seen with people in overseas appointments, they were outside appointees when people were disappointed with the culture of the organisation."

Companies such as the old Westpac before Bob Joss's tenure, driven to their knees by bad corporate governance and a dysfunctional company culture, "are the ones that need the outside hires, and it's sensible to go and look for the best talent globally rather than just locally", he said.

But as the Telstra experience showed, it is a balancing act that can end in a culture shock for all stakeholders involved. While Mr Trujillo cleared away the last cobwebs of the old Telecom Australia, the American's confrontational style forced Telstra to appoint a successor to mend fences. The new boss, David Thodey, who was born in Perth to New Zealand parents and grew up in that country, has been out there stressing his Australianness and is eager to repair relations with customers, investors and the Government.

In contrast to Mr Trujillo's experience, the US-born Bob Browning - who retains his links to Australia at the shipbuilder Austal after his controversial stint as head of Alinta - said he found the "Australian business community quite welcoming".

But it was important to get the local troops on side, Mr Browning said.

"I think the worst thing a foreign CEO can do is arrive in a different country and expect to immediately begin rolling out plans based solely on their experiences derived from their own country.

"Foreign CEOs need to take some time to understand the history of the company they've been asked to run, who is who in the zoo, what has worked and not worked in the past … before diving in trying to change things."

Despite the trend to global searches, overseas chief executives of Australian listed companies are still quite rare, said John Shields, an associate professor at the faculty of economics and business at the University of Sydney. He believes that is one of the main reasons why the era of Sol Trujillo and his "amigos" - the senior US management team he brought with him - attracted so much attention.

But the international hiring that has taken place has pushed up the executive pay scale locally, the average chief executive's remuneration estimated to have doubled since 2000, compared with a 30 per cent rise in average weekly earnings. A driving force behind this was the global competition for talent, Macquarie Group said in its submission to the Productivity Commission. "Usually to attract executives to Australia, a higher level of remuneration is set than otherwise would have been had the appointment been made internally," it said.

As if to prove the case in point, Telstra revealed this week that its new chief, David Thodey, will earn up to $9.2 million this year, significantly less than the $13.4 million Mr Trujillo was paid last year.

According to Jennifer Hill, a professor of corporate law at Sydney University, recent annual reports in Australia showed the chief executives of the local top 15 companies were paid about 135 times as much as an average employee, compared with their US peers, who earn about 500 times as much. But the top US companies are usually bigger than their Australian counterparts.

US executives are used to higher equity and cash incentives, too, prompting them to push for higher base salaries when they come to Australia to make up for the lower bonuses and stiffer performance hurdles here, said John Egan, a remuneration consultant.

Worldwide, about 13 per cent of chief executives come from countries outside their company's home nation, according to Booz & Company, which is still compiling the numbers for Australia. There are no data supporting the theory that overseas executives on average fare any better or worse than their local counterparts in Australia, but the failures are more public.

The sample size of local corporate history was simply not big enough to generalise the records of foreign executives, said Dean Paatsch of RiskMetrics. "It's a case-by-case thing. For every good one there have been a few stinkers."

Yet with US bosses estimated to earn three times as much as those in Australia, and disappointments such as the Telstra experience, some corporate governance bodies are calling for more thorough talent searches at home. They want to stop the chase for international celebrity CEOs.

The misconception and inappropriate promotion of star CEOs has shown "there are very few brilliant CEOs who have a silver or a magic bullet to develop shareholder value", said Erik Mather, the managing director of the governance research group Regnan. "It's not a mistake to look overseas for talent - it's a global world - but in a whole heap of areas the Australian economy has performed quite well," he said. "We should be proud of our ability to develop executives. It's well known that ours are highly sought after in both the North American and the UK markets as being intelligent and hard-working people. It's a national issue that we do not seem to be able to grow our own, or if we do grow our own we don't seem to recognise that it's there to be harvested."

Gerry Harvey shakes his head at boards who decide to go overseas rather than recruit from their own ranks. "The boards of directors are appalling in this. That's who it is: the chairmen and the boards of directors. I think they might have finally learned their lessons."

Leighton's Wal King also believes the leadership at many Australian boards is "very poor" in terms of planning for internal successors to run their businesses.

"If you look at the top companies, from BHP to NAB and all the rest, the succession planning has been abysmal," he said in Master CEOs.

Internal promotions are almost always cheaper, and help boost staff morale by demonstrating that hard work and performance provide opportunities, the proponents say.

And not everyone buys into the argument that Australia is too small to provide enough leaders.

While companies should be looking both internally and externally, says John Shields of Sydney University, the small-talent-pool argument is a "self-serving discourse, which you will often find CEOs themselves running to justify their own high pay, and by boards that haven't really thought it through well enough.

"I just think it's a matter of boards not being beguiled by the argument that it's only the gods that can be CEOs and therefore you can only select gods from the god pool, you actually have to look further down in organisations, for younger talent."